AUD/JPY Forex Trading Guide

Any forex trader that encounters the AUD/JPY is witnessing the Australian Dollar-Japanese Yen forex pair in action. Put simply, AUD/JPY describes how many Japanese Yen you currently need to purchase a single Australian Dollar on the global marketplace. For example, if AUD/JPY is trading at 85.00, then it costs exactly 85 Yen to purchase one Aussie dollar on the market at current rates.

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AUD/JPY is a minor currency pair and therefore tends to get less attention than some more prominent pairs such as USD/EUR. However, Australia and Japan are two closely entwined economies, and any savvy trader can have an exciting time successfully trading AUD/JPY on the global market. Read on to find out everything you need to know about AUD/JPY forex trading. 

What is AUD/JPY Forex Trading? 

AUD/JPY trading simply describes the act of trading this popular currency pair on global markets. As you may know, forex trading is one of the largest and most widespread financial activities on Earth, with more than $5 trillion worth of forex traded every single day.

With all forex trading, the goal is to buy or sell on currency in the hopes that its value against another currency will change, after which you can buy or sell and make a profit from those price changes.

Many individual forex traders tend to stick to day trading, which means buying and selling a currency pair within the same day, with the intention of capitalising on incremental price shifts throughout the trading period.

AUD/JPY forex trading describes buying and selling the AUD/JPY pair in the hopes of profiting from later price shifts. For example, a trader might buy AUD/JPY in the hopes that the Aussie dollar would appreciate against the Yen, after which point, they could sell for a profit. 

History of the AUD/JPY Forex Pair 

The Australian Dollar is a relatively new currency, having been introduced back in 1966. Prior to this, the currency of Australia was the Australian Pound, which was pegged at parity to the British Pound Sterling (GBP). Upon the adoption of the AUD in 1966, Australia remained in the Sterling Area, with the new AUD was fixed to the GBP at a rate of £1 = $2. 

However, when the British Pound was devalued against the US Dollar in 1967, Australia chose to leave the Sterling Area, after which point the AUD became pegged to the USD. Today, the AUD is a free-floating currency that is used as official tender in Australia, and unofficially in Vanuatu, Cambodia, Gambia, and Papua New Guinea.  

The Japanese Yen, meanwhile, has a much longer pedigree. The Yen was first introduced by the Meiji Government back in 1871, as part of an attempt to replace the dozens of metal currencies circulating throughout Japan overnight.

Although this took time, it was largely a success, with the original Yen being pegged to Spanish pieces of eight. Like AUD, JPY is today a free-floating currency, with a value that is strongly correlated with global and regional economic developments. As the world’s third-largest reserve currency, JPY is immensely popular with forex traders everywhere. 

There are many benefits to trading AUD/JPY, such as: 

  • A great way to diversify a forex portfolio with a fully Asia-Pacific currency pair.
  • Strong correlation with other currencies.
  • Some correlation with certain commodities, such as Brent crude.
  • High levels of sensitivity to global economic events, allowing for a degree of predictability.

Factors that Influence AUD/JPY

As the currencies of two complex and highly globalized economies, many factors impact the daily price of AUD/JPY, such as: 

  • Interest rates and monetary policy announcements by either the Bank of Japan (BOJ) or the Reserve Bank of Australia (RBA).
  • Fluctuations in oil prices, as Australia is a major exporter and Japan relies entirely on oil imports 
  • Any developments that affect the price of the Chinese Yuan (CNY).
  • US economic news, as the fortunes of both economies are closely tied to that of the US.

The Role of AUD

The Australian Dollar is the world’s seventh most widely-held reserve currency, and probably the most valuable in the Asia-Pacific region. Australia is one of the world’s most prosperous economies, as well as a major oil and gas exporter with a giant financial sector.

Aussie dollars were once ignored by forex traders, but are increasingly becoming an essential component of any balanced forex portfolio.

The Role of JPY 

The Yen is the most widely-held and traded Asian currency by a very wide margin and one that every forex trader cannot afford to ignore. It is the official and only currency of Japan, a country with one of the world’s most important financial centres, Tokyo – as well as one of the world’s most influential technology and manufacturing centres.

The BOJ is very proactive in managing the value of JPY in order to keep exports competitive, so, it’s best to also keep an eye on the central bank when trading AUD/JPY.

Strategies on forex trading AUD/JPY

AUD/JPY is a unique currency pair that requires a lot of well-thought-out strategy in order to successfully trade it. Here are some key pointers to keep in mind: 

  • Always keep a close eye on any news or announcements coming from either the ARB or the BOJ.
  • General global economic sentiment has a strong impact on AUD/JPY, so don’t forget the market fundamentals.
  • Oil prices are positively correlated with the AUD, while the opposite is the case with JPY.
  • Have a rigid exit strategy and stop-loss in place when trading AUD/JPY, as this is a highly volatile currency pair where slight changes can quickly wipe out any gains.

When to Buy or Sell AUD/JPY

The first thing to note here is that, as a minor currency pair, AUD/JPY can occasionally suffer from a serious lack of liquidity, meaning that you might not be able to buy and sell exactly when you want to if the demand is simply not there.

You can mitigate this by trading during peak hours for Australian and Japanese markets, which are typically between midnight and 6 am GMT. This is when liquidity for AUD/JPY is at its highest. 

When trading AUD/JPY, it is important to look at the market fundamentals in order to determine when the best times to buy and sell are.

For example, you might have seen some financial news that reports that oil prices are due to rise substantially in the coming days.

In this scenario, you would want to hit BUY on AUS/JPY, as it is likely that a jump in the price of oil would raise the price of AUD against JPY. You could then hit SELL after the price has risen, profiting from the price increase. 

How to Trade AUD/JPY

Despite the occasional liquidity problems, trading AUD/JPY is simple and straightforward. These are two hugely influential global currencies, so you will have no trouble finding up-to-date financial analytics and news about AUD/JPY.

In addition, it is essential that you use a trusted online broker to trade AUD/JPY – one that relies on real market data and executes your forex trades in real-time. With a trusted forex broker, you can begin successfully trading AUD/JPY. 

Profit with AUD/JPY

Put simply, AUD/JPY is an immensely volatile currency pair, subject to dramatic price fluctuations at the drop of a hat. As a forex trader, it is your job to successfully identify when these moments of volatility are likely to occur.

If you can perfect this delicate art, for example, by monitoring the prices of correlated commodities such as oil, then you can begin to profit from AUD/JPY forex trading. 

Close Your Position to Take a Profit or Cut a Loss 

As with any form of real-money financial trading, knowing when to cut your losses and get out is essential. When day trading forex, a single sudden market shift can wipe out an entire day’s worth of profits. That is why you should always have a stated exit strategy and ensure that your broker places a stop-loss on your account so that you can automatically close your position if your losses reach a certain point. 

Chose a Broker & Open an Account 

When trading a major currency pair such as AUS/JPY, choosing a trusted and licensed broker is essential. 

A quality broker will work with expert data and resources to help you make informed trades. They will offer direct market access to allow you to buy and sell at exactly the moment that you want to.

They will hold valid licenses from trusted financial regulatory bodies, to guarantee the safety of your money. To find out which brokers offer all of these crucial elements, make sure to check out our reviews of trusted forex brokers today.

AUD/JPY Trading Risks 

AUD/JPY is a good hedge against other currency pairs and can be a great way to diversify your portfolio. That being said, it comes with its own risks that any forex trader should always keep in mind, such as: 

  • A lack of liquidity stemming from a comparative lack of demand for AUD/JPY on global markets.
  • High volatility that can easily wipe out a day’s worth of profits in just a few seconds.
  • High trading costs, owing to the illiquidity and the highly inconvenient trading times for US traders.

Conclusion

AUD/JPY sometimes tends to fly under the radar of even the most experienced forex traders. However, this is a mistake. This immensely exciting pair is an ideal way to diversify your forex portfolio, as well as being a way to trade using more varied market fundamentals. Overall, AUD/JPY is definitely worth your time.